Energy's New Class of Innovators

July 13, 2010
Small- and medium-sized manufacturers are bringing innovation and value-added to the renewable markets. But will it pay off?

Dowding Industries didn't need to witness the collapse of GM and Chrysler before deciding the time was right to exit the automotive sector. For more than a decade, the family-run manufacturer had witnessed the sinking of too many links within the auto supply chain.

As more and more small- and medium-sized manufacturers fell by the wayside, undermined by the narrow margins and inherent inefficiencies of the car business, Dowding saw potential in new areas, such as components for off-road vehicles, rail cars and wind turbines.

Determined to forge ahead into a green future, Dowding borrowed $12 million to build a 38,000-square-foot state-of-the-art facility and furnished it with advanced new machinery to produce the necessary parts to fit a wind turbine. But within months of the grand opening, the Eaton Rapids, Mich.,-based manufacturer was hit by something it could never have foreseen: the worst economic recession in 30 years.

A break press operator at Dowding Industries bends a part that will ultimately go into a wind turbine. Dowding Industries has invested heavily in repositioning itself for the wind industry.It's a familiar storyline for many small- and medium-sized enterprises (SMEs) that have made the transition to the renewables market in recent years. As demand for wind blades plummeted two years ago, Dowding pieced together business by making parts for satellites, dump trucks and subway cars. Along the way, it had to cut its workforce by nearly half.

"We made that investment and it was an all-out push," says Jeff Metts, president of Dowding Industries. "It's a little scary sometimes, because we're still waiting for the market to get there. Looking back, I probably would have done things differently. But it's all going to work out in the long run."

The contraction of the automotive sector, combined with the promise of an emerging renewable energy market, has inspired a wave of SMEs to make bold, even risky, investments. Some, like Dowding Industries, leveraged their assets to transform themselves for a new industry. Others fell into green quite by accident. Over a dozen companies that spoke to IndustryWeek for this article cited the tantalizing opportunity of the renewable market, but also its inherent uncertainty -- and the impact it has had on their businesses.

Unlike large OEMs, such as GE, Siemens and Vestas, which have vast sums of resources to cultivate a market and wait (sometimes years) for it to flourish, SMEs have more limited means. Surprisingly, that often works to their advantage.

According to Dan Radomski, managing director at Kinetik Partners, a clean energy consultancy group, smaller sized companies, because they are agile and can respond to the market quickly, play a critical role in the manufacturing development of the renewable industry, bringing innovation to production processes, tapping new materials and uncovering niche markets.

"To be successful in this, SMEs have to approach the market not only as a service provider, but also as an innovation provider," says Radomski. "They have to bring forth new ideas, new components, new technologies, new manufacturing methods and new machining methods."

Specification Changes

An operator at Cardinal Fastener & Specialty heat treats a fastener, which will be used to hold together wind tower segments.For all the enthusiasm the renewable market has generated, it is still one that is evolving at a rapid rate. Specifications of components, from their weight, to tolerances, are changing, while reliability has become an increasingly troublesome issue.

The wind industry, for example, is trying to address the quality of wind gearboxes and turbine blades. Experts in the field have reported that turbines need to operate efficiently for at least 15 years in order to be cost-competitive. However, wind operators are reporting system failures within six to 10 years.

The dependability issue has opened the door for smaller players offering innovative technologies. Take Danotek Motion Technologies, based out of Canton, Mich., which develops and manufactures permanent magnet generators, power control electronics and brushless motors for a variety of industries.

When Danotek was first founded in 2001 by three former GE engineers, its primary technological achievement was permanent magnet generators: a more efficient generator, with a higher power density, that replaced copper windings with powerful magnets.

Danotek initially sold the technology to equipment manufacturers, specifically eyeing niche markets where weight and energy savings would be highly valued. The automotive sector, for electric and hybrid vehicles, is a core piece of business, along with cogeneration and industrial markets. But Danotek sees its growth in wind. Over the next five months, the company will begin producing a line of products specifically designed for the industry.

"It's a good fit because our technology can help benefit in a turbine's efficiency gain, weight and reliability," says Daniel Gizaw, chief technology officer at Danotek.

The problem, he says, is the industry is still profoundly behind the technological curve in recognizing how to produce a quality, efficient product at a reasonable price.

"Wind turbines largely use components that are not designed for wind turbines," says Gizaw. "You have variable speed wind: The speed is constantly changing. So you can't use a fixed-speed gear box or fixed-speed clutches and generators. By doing that, you're wasting a lot of energy and a lot of equipment."

Many OEMs, he says, were consumed with the euphoric march toward a green revolution and only now are learning that wind -- with its own unique demands and tolerances -- requires a deeper understanding of the engineering.

"There's so much learning and so many good ideas coming," says Gizaw. "The challenge for us is we want to be up and running as soon as possible. But those changes are affecting our ability to start manufacturing quickly. Specifications as we speak change from customer to customer every six months. That's an extremely challenging situation to be in as a manufacturer."

Nuts and Bolts

John Grabner came to realize the significance of his company's push into the wind market when on a cold, dreary morning in early January 2009, he was informed that president-elect Barack Obama would be visiting Cardinal Fastener & Specialty.

Obama made a nationally publicized stopover at Grabner's facility just days before his inauguration, using the visit to highlight manufacturers who have reinvented themselves.

Cardinal Fastener is an intriguing case in point. For 26 years, the company had fashioned itself as a high-throughput producer of bolts for off-road equipment and machinery for heavy manufacturers. But three years ago, one of its fastener distributors in Iowa put in a fast-turnaround order for several dozen large bolts. When asked where it was going, Grabner learned it was headed to wind turbine OEM Clipper Windpower.

Grabner's curiosity was piqued. Over the next year, Cardinal Fastener repositioned itself for the wind sector -- an area few U.S. bolt manufacturers were addressing -- earning ISO 9001-2008 certification, while adopting a rigorous lean program. The fasteners, which hold together wind tower segments and the nacelle on top, require special codings and hold strict dimensional, chemical and mechanical properties.

Danotek Motion Technologies permanent magnet generators, above, offer higher power density than standard generators, replacing copper windings with powerful magnets."One of the biggest differences about working with wind companies is that your calling card is who you are doing business with," says Grabner. "If I go to a Caterpillar and I tell them I'm doing business with Komatsu, they get upset with that. But if Vestas sees I'm doing business with Gamesa, they think that's great."

Last year, about 12% of Cardinal Fastener's total volume came from the wind sector. This year, that number is expected to soar to 50%, and with contracts coming in for the next 18 months, Grabner estimates 2011 will see it account for 70% of its business.

According to Grabner, almost all of his fasteners for wind will go toward domestic installations. With so much focus going into establishing the wind industry in the U.S. market, many of the largest foreign OEMs, such as Siemens and Vestas, are looking to establish local supply chains.

"Right now, there's already so much here," he says. "If you think that [OEMs] have been supplying this product from overseas facilities and they're only now just starting to bring that supply chain to the U.S., we've got enough for the next four or five years to really grow our business significantly. It's a huge opportunity."

Seeing the Light

Inspiration often begins with a question. For Dr. Osbert Cheung, it began by pondering the nature of glass. Why, he wondered, does the solar industry, which invests so much time and resources into cells, use such a heavy, ultra-fragile and inefficient material as glass for its panels?

Cheung launched SBM Solar in 2002, designing and manufacturing non-glass, rigid, crystalline silicon photovoltaic solar panels for commercial and residential buildings. Cheung's product weighs as much as 50% less than glass panels and can be designed for any shape, allowing it to be used in niche markets, such as marine, military, industrial and transportation-related applications.

But according to Cheung, the only way to make these panels cost-effective is through incorporating automation into the manufacturing process. To automate means investing heavy upfront dollars into capital equipment.

"For the last eight years, we've basically been an R&D shop," says Cheung. "Most of our machinery -- just about our whole process -- has been manual."

SBM Solar, based out of Concord, N.C., recently purchased a $500,000 tabber stringer machine and will next be looking to complement it with an automated laminating machine and sun simulator for testing. But according to Cheung, capital purchases of this nature have been extraordinarily difficult to pull off.

"That's something we didn't foresee," he says. "One of the things I assumed was we would get, at the very least, some government help. But I haven't seen this at all."

It's a familiar plight. Xunlight, a manufacturer of thin, flexible solar panels in Toledo, Ohio, is scaling up its production by investing $25 million to build an automated front-end processing line using wide-web roll-to-roll processing. When completed, it will allow Xunlight to manufacture solar cells by the mile.

"The challenge we've had is we're competing against larger manufacturers, so it requires constant innovation to drive the cost down," says Xunming Deng, the founder and CEO of Xunlight. "We have limited cash and we have to build the production line. Unfortunately, those cost a tremendous amount of money. We have a rule around the offices here: We buy used furniture, but we buy new machines. Sometimes you have to save money on the other end so you can build the best production equipment."

The Element of Risk

It takes more than investment and capital for SMEs to be successful in the renewables market. Kinetik Partners' Radomski says one of the most vital points often overlooked by smaller companies is that it takes time and resources to cultivate a niche in the industry.

Familiar ways of doing business, such as looking at the blueprint for a component and providing a quote, aren't enough, says Radomski. SMEs have to be able to identify where inefficiencies are in the way OEMs are producing their products, and provide alternatives through innovations, production techniques or new materials.

"If you're going to approach these markets, whether it be wind, solar or advanced batteries, you need to take a careful look at what the value chain looks like, from raw materials to finished products," says Radomski. "You need to look at how products are manufactured, where it's done and through what processes. It's only then that you see the white spaces: where the high-margin items are and what kind of innovation that you can bring forward that's going to be dramatically different than competitors. If you truly want to make a difference and create a long-term business advantage, you're going to have to bring more than just your typical service."

Which is why Dowding Industries, for all the pain it has gone through, taking out millions of dollars in loans only to witness a harrowing economic contraction, still believes its investment will pay off.

Dowding has partnered with MAG Automation Systems to develop a machine tool that can dramatically reduce the cycle time it takes to machine hubs for the wind industry. What had previously taken a 36-hour cycle time has been reduced to five hours.

"I don't know if this whole investment will turn out to be right, wrong or what," says Metts. "It's a gamble. We won't know for five years if this idea worked or not. If it did, we're geniuses."

See Also:

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